Catalyst
International, Inc. (OTC: CLYS.OB), a global provider of supply
chain execution (SCE) applications, announced that it has signed an agreement
with ComVest Investment Partners (www.comvest.com),
an institutional private investment firm, which will result in the acquisition
of all outstanding shares of Catalyst. In the proposed transaction, a company
formed by ComVest would merge into Catalyst, while the shareholders of Catalyst
would receive $2.50 (USD) per share, in cash, in the proposed transaction.

During
the past two years, Catalyst has been promoting an innovative marketing plan
to sell best-of-breed applications while implementing the SAP LES
product, which has resulted in nearly 100 best-of-breed customers (using only
Catalyst's components) and 200 SAP-related customers (including those where
Catalyst has merely done the consulting work, without necessarily selling its
SCE components). To provide a more complete product offering for their customers,
Catalyst and SAP have recently reinitiated joint programs to set a new standard
for integration. These include the joint development of the SAP advanced interface
for integrating CatalystCommand and SAP's LES with R/3 and
mySAP Enterprise, the designation of Catalyst as a principal
service provider for implementation and modification of SAP's LES, and establishing
Catalyst as a North American support center for SAP's LES software products.

Catalyst
developed a customer service center called the Supply Chain Execution
Competency Center (SCE Competency Center) back in
1999, which supports both SAP LES and Catalyst SCE software
products by providing training, consulting, and support services. Under the
alliance with SAP, Catalyst deploys its service organization to implement and
provide support for customer and TeamSAP partner requests,
including a support hotline, implementation services, and on-site support for
SAP LES in North America. Ongoing customer support services monitor system performance
and facilitate software configurations, modifications, upgrades, and troubleshooting,
as needed. In mid-2003, Catalyst acquired Philadelphia, Pennsylvania, US-based
Catalyst Consulting Services, Inc., an independent
provider of consulting, implementation, and support services for SAP LES, primarily
to Fortune 500 companies. The company also provides complete wireless data collection
solutions incorporated with the implementation of SAPConsole.

Further,
in April 2004, Catalyst introduced the new componentsNOW web
site (www.componentsNOW.com),
the first global marketplace for the users of SAP solutions, which features
components, external applications, add-ons, complementary hardware and information
for product comparisons and build/buy analysis. These components, some of which
are quite granular, might help SAP's existing and prospective users more closely
tailor their SAP solutions to their individual needs, since the site already
has more than one hundred components for SAP customers to research, compare,
and order. Given Catalyst is a SCE supplier per se, many of its supplied components
within the site were logically designed to supplement the SAP Warehouse
Management (WM) product. The site's Phase I rollout
primarily features plug-in modules for SAP LES and related SCM applications
from Catalyst and more than a dozen software suppliers, including IBM,
Advanced Logistics Systems, and Seeburger.

This
is Part Three of a four-part note.

Part
One presented the event summary.

Part
Two presented the current strategy.

Part
Four will provide market analysis, challenges, and user recommendations.

Expanded Offerings

Catalyst
anticipates that the site will significantly expand its offerings of finance
and human resource (HR) applications in the near future. Namely, there
should eventually be the following three categories or levels for the SAP components:

The
transaction level—such as a component that ties into SAPConsole
and allows for special screens on an RF terminal as to assist a form of receiving
that is particular for certain vertical industry;

The application feature level—including any necessary component
that would plugs into a native SAP application to extend its functionality;
and

A
new independent application—for example, SAP currently does
not offer a sophisticated labor management module to work with SAP WM. While
these new applications would use the basic SAP data model, they would not
necessarily closely integrate within SAP workflows.

While Catalyst International created this Internetbased initiative, and will develop more logistics components for the site, its ultimate success will depend upon other enterprise suppliers and the participation of third party developers. For them, the site might offer an efficient marketing channel for generating and pre-qualifying leads without the expense of direct selling, while it might also broaden their reach to a global audience, accelerate the sales cycle, and provide opportunities to sell packaged solutions. To insure neutrality, the site uses a content management system hosted by a third-party to allow suppliers to post components, insure that leads are fairly disseminated, and to prevent visibility of one supplier into the leads and revenues generated by other vendors. Catalyst hopes to recoup the investment by garnering the advertising revenues from the site's management and commercialization.

Based on the above-stated facts, Catalyst serves customers in several different industries, representing several major vertical market categories, and it targets industries that have the most demanding supply chain requirements, hoping this should enable it to leverage its expertise and experience for competitive advantage. The vendor has a dedicated sales group for each of its vertical markets—motor vehicle and parts (including automotive, aerospace, and parts distribution), retail, consumer packaged goods (CPG), process goods (including pharmaceuticals and specialty chemicals), and cross-industry applications.

While these markets will remain the primary focus for the foreseeable future, the sales teams will additionally explore opportunities to expand Catalyst's presence in sub-categories of these markets (e.g., discount stores and direct-to-consumer segments within the retail sector), as well as selected horizontal markets (e.g., third party logistic [3PL] providers).

Catalyst also strives to be the dominant firm in the tier-one market segment, where the customers are characterized by the size, complexity, and volume of their distribution facilities and supply chain network. While most Fortune 1000 firms are tier-one, the segment is not limited to these firms. In other words, the characteristics of a tier-one distribution facility typically include size of 200,000 square feet or more, volumes of 10,000 items per day or more, at least 75 concurrent users, extensive use of automated material handing equipment, RF devices and bar coding, complex warehousing strategies, and other non-standard storing requirements, such as hazardous materials, refrigeration, etc. For these enterprises, Catalyst even offers a rich set of features that can be customized according to specific customer requirements.

Worldwide Marketing

Catalyst
relies predominantly on direct sales in North America and in the UK, and on
a network of value-added resellers (VARs) in South America and EMEA
regions (see Catalyst
International Secures French Connection with Steria). Thus, its products
are operating in Australia, Brazil, Canada, El Salvador, France, Germany, Guatemala,
Holland, Ireland, Italy, Mexico, Spain, the UK, and the US. The UK subsidiary,
Catalyst WMS International Limited, was established in 1994
in London, England to sell, service, and support Catalyst software products
in certain international markets. In Latin America and Europe, the vendor utilizes
the assistance of VARs to sell and assist in the implementation and support
of its software products. It plans to continue strengthening its presence in
these regions through relationships with supply chain participants and enterprise
software vendors and by developing close relationships with system integrators
in those regions. It also plans to continue to increase its international business
through a more aggressive effort to recruit and manage additional VARs in selected
fast-growing foreign markets. These VARs work together with Catalyst personnel
in obtaining agreements for global, multi-site installations with multinational
customers. CatalystCommand is currently available in English, French, Italian,
Portuguese, German, and Spanish.

Nevertheless, poor execution prior to the last several years has hurt Catalyst and has all but relegated it to run status in the SCE marketplace, during which time the vendor struggled to attract new customers and persuade existing ones into major upgrades. Since then the company has returned to double digit growth (reportedly a current annual revenue run rate of $40 million [USD]) and profitability. One of Catalyst's most notable accomplishments over the last few years has been its transformation into a customer-focused organization, by investing the time to understand its customers' business and operational goals, and by working with them to develop SCE metrics that align with these objectives.

The vendor has also been delivering deeper support through its vertical market teams that manage the entire gamut of the relationship—from business development, via relationship building and implementation to ongoing customer support. As a result, it has reportedly improved the response times by over 30 percent, increased its quality fix rate by almost 50 percent and raised the customer satisfaction ratings beyond 90 percent. Still, these achievements have not drastically improved how the vendor is perceived. Its previously troublesome financials have prevented the company from closing deals with risk-averse prospects.

This
concludes Part Three of a four-part note.

Part
One presented the event summary.

Part
Two presented the current strategy.

Part
Four will provide market analysis, challenges, and user recommendations.